17 Jul 2014

Australian carbon price finally repealed

The Australian Senate today passed the bills repealing the Clean Energy Act 2011, the centrepiece of the Australian carbon price scheme that commenced on 1 July 2012.

The bills failed to pass the Senate last week, when the Palmer United Party sought to introduce further penalties for price exploitation in the bills. The Federal Government then amended the bills and re-introduced them into Parliament, for a third time, earlier this week.

Once the bills have received royal assent, the carbon tax repeal and most other provisions will take effect from 1 July 2014.

Prohibitions on price exploitation in relation to the carbon tax repeal

The repeal legislation includes several "price exploitation provisions", inserting sections in the Competition and Consumer Act 2010 that prohibit corporations from engaging in "price exploitation in relation to the carbon tax repeal" during the period 1 July 2014 to 30 June 2015, in relation to the supply of natural gas, electricity and other specified goods ("regulated supplies").

These price exploitation provisions commence on the day after royal assent is given to the repeal bills, and relate to conduct engaged in from and after that date in relation to the period from 1 July 2014.

In a departure from the previously rejected bills, the bills passed today by the Senate include a new penalty provision (new section 60CA of the Competition and Consumer Act) that would apply if an entity that is a supplier of electricity, gas or synthetic greenhouse gas breaches the prohibition on price exploitation in relation to the carbon tax repeal.

If that breach of the price exploitation provisions involves a failure to pass through all of the entity’s cost savings relating to the supply that are directly or indirectly attributable to the carbon tax repeal, there is a fixed penalty of 250% of those cost savings that were not passed through. This fixed penalty is in addition to any other pecuniary penalty that may be imposed for breach of the price exploitation provisions by any party.

The legislation also reverses the onus of proof for alleged price exploitation in relation to the carbon tax repeal. A notice from the ACCC stating that in the ACCC's opinion the entity made a supply which did not pass on all of the entity's cost savings will be prima facie proof of price exploitation.

Retailers of gas or electricity must give the ACCC "carbon tax removal substantiation notices" within 30 days after royal assent of the repeal bills. Note that "retailer of electricity" is sufficiently broadly defined to cover any producer or generator of electricity, including those that sell all of their output in the National Electricity Market to the Australian Energy Market Operator.

What will replace the carbon tax as Australia's response to climate change?

Two other substantive reforms to Australia's carbon emissions and renewable energy schemes are also still being considered:

The legislation to implement the Australian Government's Direct Action policy, under which an Emissions Reduction Fund will be established to buy up to A$2.55 billion in carbon credits from emissions abatement activity under a revised Carbon Farming Initiative, is expected to be considered by the Parliament later in the month.

The review into the Renewable Energy Target, which was originally intended to mandate that 20% of on-grid electricity be sourced from renewable sources, is still continuing. Potential outcomes from that review include closure of the whole scheme, closure of the small technology (rooftop solar PV) section of the scheme, or revision of the scheme to a lower target, perhaps prescribed by percentage of power acquisitions rather than the present fixed 41,000 GWh per annum target.

In addition, the Federal Government has indicated that it is developing an additional scheme, known as the Safeguard Mechanism, which is intended to require large emitters of greenhouse gases not to raise emissions levels above individually set baselines. There is limited information currently available, and the Government proposes to develop the scheme over the coming year, with a view to commencing operation on 1 July 2015.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.